After reading an article about activity-based costing in a trade journal for the furniture industry,...
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After reading an article about activity-based costing in a trade journal for the furniture industry, Santana Rey wondered if it was time to critically analyze overhead costs at Business Solutions. In a recent month, Santana found that setup costs, inspection costs, and utility costs made up most of its overhead. Additional information about overhead follows. Activity Setting up machines Inspecting components Providing utilities Cost $18,720 $ 5,200 $10,400 Driver 26 batches 5,200 parts 5,200 machine hours Overhead has been applied to output at a rate of 60% of direct labor costs. The following data pertain to Job 615. Direct materials Direct labor Batches Number of parts Machine hours $2,500 $3,400 5 batches 480 parts 700 machine hours Required: 1. Classify each of its three overhead activities as unit level, batch level, product level, or facility level. Setting up machines Inspecting components Providing utilities 2. What is the total cost of Job 615 if Business Solutions applies overhead at 60% of direct labor cost? Total cost 3. What is the total cost of Job 615 if Business Solutions uses activity-based costing? Total manufacturing cost
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